Fannie Lowers Purchase Mortgage Outlook for 2021, Increases Refinance Forecast
Written By: Joel Palmer, Op-Ed Writer
Fannie Mae has revised its latest mortgage forecasts to make room for higher refinance volume while anticipating slightly lower purchase loans.
The company’s latest Economic and Housing Forecast contains a downward revision on existing home sales for the second quarter, from 6.16 million units to 5.88 million.
Fannie noted that existing home sales declined 3.7 percent in March, while the National Association of Realtors reported last week that they dropped another 2.7 percent in April.
“We have long expected that a combination of waning COVID-19-induced movement into single-family housing and continued tight inventories would lead to a slowing pace of existing home sales as the year progresses,” said Fannie in its latest forecast. “However, the latter factor appears increasingly more limiting."
Fannie noted that the supply of homes for sale at the end of March, even with the sales pace slowdown, was only 2.1 months, a near record low. Fannie cited additional data showing a record-high 48 percent of homes sold above list price in April and a record 45 percent of pending home sales under contract within 7 days of listing.
NAR reported that properties were in the market an average of 17 days in April 2021 compared with 27 days the year before. In addition, 88 percent of home sold in April 2021 were on the market less than a month.
Fannie also noted that its Home Purchase Sentiment Index fell in April, most notably because of a month-to-month decline, from 53 percent to 47 percent, in survey respondents who said it is a good time to buy a home.
The latest forecast included a slight increase in its outlook for single-family housing starts based on last month’s increase of 15.3 percent. However, Fannie says even with the demand for homes, the market for newly built properties is limited because of current supply constraints and a shortage of available lots.
Taken all this together, Fannie Mae slightly lowered its estimates for purchase mortgage volume in 2021, trimming about $43 billion from last month’s forecast of $1.8 trillion.
That would be more than offset by a higher forecast for refinance volume. Fannie said it now expects a $125 billion increase in refinance mortgage loans in 2021 from last month’s forecast of $2.2 trillion. Fannie also bumped up its 2022 refinance forecast by $43 billion over last month’s prediction of $1.1 trillion.
Fannie noted that a little more than half of all outstanding mortgages have at least a 50-basis point incentive to refinance. That’s up from 42 percent in last month’s report, caused by a recent decline in mortgage rates.
Another positive indicator for increasing refinance volume is the growing amount of equity homeowners are accumulating due to rising home values.
A recent report by ATTOM Data Solutions, a property database curator, showed that nearly 18 million residential properties had more than 50 percent equity. That accounts for nearly a third of all mortgage homes in the U.S.
This creates a large potential market of refinance mortgages, as many existing homeowners don’t necessarily want to sell their current home just to buy another property that has surged in value. Plus, homeowners have a greater ability in this climate to pull out equity to make home improvements or to wipe out other debt.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
